By the time they reach their 40s, most tax and legal professionals have established their practices and are beginning to enjoy the fruits of their labors. If things have gone well, the initial startup difficulties have been overcome, and a steady stream of referral business is now coming in the door. At this later stage in their careers, retirement is not as far off now as it once was, and new goals involving family and more downtime may be on the horizon.
The revenue from a tax or legal professional's business will be the source from which the funding for all of their future personal goals is drawn. If you're a tax or estate-planning professional, read on to learn how offering financial planning services can double your bottom line with minimal impact to your workload.
See: Financial Careers
A Logical Solution
While many tax and legal practitioners would like to see their revenues increase, they may be unsure at this point of how to achieve this without compromising in other areas of their lives. One possible solution that many tax and estate planning professionals have discovered is offering financial planning services for their clients. While this may seem like a major undertaking, tax and estate professionals who choose this path will soon discover that they possess several considerable advantages over the majority of their competition who must build their businesses from scratch. (To learn more, read Is A Career In Financial Planning In Your Future?)
Building a Solid Foundation
Most advisors who start their own financial planning practices must spend several years marketing and promoting their businesses, proving their competence to their clients before they see real rewards. However, tax and estate professionals with established practices have already achieved this goal, and can therefore immediately offer financial planning services to their clients. Furthermore, they enjoy a level of credibility with their clients that can be very difficult for other advisors to achieve, as they are already thoroughly familiar with their clients' financial situations and backgrounds.
This level of knowledge and trust effectively allows them to bypass the sales process and simply make objective professional recommendations. These recommendations can often involve substantial sums of money, as clients with tax and estate-planning issues often have higher incomes and larger investment portfolios. (See also, Your Investment Manger: Skilled Or Lucky?)
For the budding insurance salesmen who must generate business solely from their own prospecting efforts, selling a $100,000 annuity contract paying a 5% commission represents a good day's work. However, that's nothing compared to what a tax or estate practitioner could make servicing a wealthy client who is looking for a way to efficiently transfer $2 million in personal assets to charity. Many practitioners have this kind of business walking in the door on a regular basis, but have no platform from which to actually implement their own recommendations.
For tax and estate practitioners, finding the right platform upon which to do business can be a confusing issue to resolve. There are a number of factors that must be considered.
What Services to Provide
The selection of financial products and services available today is nothing short of bewildering. Every conceivable type of investment, insurance, mortgage, loan and bank product is readily available through multiple channels. The first step practitioners must take is to examine their businesses and decide which products and services are the most relevant and beneficial for clients. Practitioners also need to establish reasonable limits for the scope of services to be provided, as it can be easy to try to go in too many directions at once. If a practitioner wants their business to offer every product and service available, it may be wise to delegate some of those options between various employees or partners. Then, each associate can specialize in a given area and ensure a professional level of service across the board.
Method of Compensation
Whether to charge fees or commissions is a key issue, and will depend at least somewhat on the level of objectivity that practitioners intend to maintain in their planning. Generally, planners who charge a fee for advice are considered to be more objective than those who charge commissions, as their compensation does not depend on whether clients act on their recommendations or which products or services they use to implement them. However, the compensation for planners who work on commission is often exponentially higher than that of fee-based advisors, especially when insurance of any kind is involved.
For example, assume that a client with $2 million in assets marked for charity meets with his practitioner or planner. The practitioner advises him to establish a charitable remainder trust and sell the assets, then use the proceeds to buy an annuity that will pay him an income stream for life. If the practitioner charges a set fee for the advice, then they will probably make $500, at best. On the other hand, if the practitioner gave the advice for free and then sells the client a $2 million annuity, the commission will likely be somewhere between $100,000 and $150,000, depending on which company and product is chosen. While truly ethical planners will always make objective recommendations, from a business perspective it is difficult for many to content themselves with fee-based compensation when that kind of money may be available. (For related reading, see Paying Your Investment Advisor - Fees Or Commission?)
Choosing a Broker-Dealer
It will probably take most practitioners some time to sort through the myriad of financial services companies and decide which one is best for them. The main criteria for selection should include compensation structure, the selection of products and services that are offered and back-office support. The back office provides technical and sales support as well as compliance regulation. Many broker-dealers also offer specialized products and services for niche markets, such as deferred compensation plans for physicians or 1031 exchange services for real estate investors. This can be valuable for practitioners whose clients have specific needs that can be filled by offering one of these tailor-made programs.
Licensing and Training
Licensing and training will probably make up the largest portion of the practitioner's initial outlay of time and capital. While studying for and taking licensing exams can be an ordeal for many new advisors, securities and insurance tests can hardly be compared with the board exams that lawyers and certified public accountants (CPAs) must pass. Even an experienced tax preparer that is not a CPA should have no trouble obtaining the required licenses. Depending on what licenses are required and how many classes are needed to study for the exams, the overall cost will probably run from a few hundred dollars to perhaps somewhere over a thousand. Other than that, practitioners will have very little in the way of startup expenses. Of course, if a practitioner desires to obtain a professional designation such as the Certified Financial Planner®, this will mean additional time and expense. (For more insight, see The Alphabet Soup Of Financial Certifications and Studying For The CFP® Exam.)
As for training, your broker-dealer will have a program to show you how to place trades and maintain firm and industry compliance. It may also provide some sales training, but the companies offering the products and services used by the practitioner will likely provide him or her with considerably more support in that area. Most investment and insurance companies provide a wide range of marketing materials for virtually all kinds of customers, as well as personal wholesaler support.
For tax and estate practitioners, the rewards of offering financial planning services can be substantial and immediate. Commission revenue can often result from solving a client's tax problem. If a CPA has a tax practice that is generating $300,000 a year in revenue, adding financial planning could easily double that number in the first year. The additional overhead costs would be negligible.
The Bottom Line
For tax and estate practitioners seeking a cost- and time-effective way to increase their revenues, no option can compare with adding financial planning to the mix. The clients, the trust, the knowledge and the location are all already in place. By merely obtaining a few licenses and selecting a broker-dealer, these professionals can quickly and easily generate substantial additional income with a minimum amount of time and effort.